[AR] More investment talk, on a_rocket list (was Re: Re: VSS Unity powered flight)
- From: "Perry E. Metzger" <perry@xxxxxxxxxxxx>
- To: William Claybaugh <wclaybaugh2@xxxxxxxxx>, arocket@xxxxxxxxxxxxx
- Date: Sun, 8 Apr 2018 18:28:11 -0400
On Sun, 8 Apr 2018 15:53:53 -0600 William Claybaugh
<wclaybaugh2@xxxxxxxxx> wrote:
Perry:
I think I would like to apologize for the tone of that last post:
Don't worry about it.
I was writing in nominal terms and I will continue to so do;
inflation adjustment only serves to confuse in my view, as your
post demonstrates.
But sadly, we cannot forget inflation if we wish to preserve capital.
The purchasing power of the US dollar has gone down something like
96% since 1913 (a key date because that's when the Fed was
instituted and bank notes ceased to be capped by the excess
clearings rule), and investors care only about real purchasing
power and not the nominal price.
So, as you know from that last post, nominal treasury rates have
been as high as 20%;
Not for the 10 year. Certainly some notes have gotten that high,
though I think it was only for a matter of weeks. The ten year peaked
at around 15.4%.
indeed, according to Bob Shiller's index of
10-year US rates since 1871, for the period 1975-2010 the 10 year
rate averaged 7.615%.
Well, sure, the 1970s to early 1980s were a period of raging inflation
and thus the nominal rate went up a lot. Regardless, the
nominal rate isn't very interesting.
I accordingly stand by my claim. However,
we can note that for the entire data set 1871-2018 the average
10-year rate was 4.604%,
Nominal rate again. I don't know much about the period before the
institution of the Fed. For most of the last century, though, the
usually quoted real (not nominal) rate of return for a ten year
T-note investor who was re-investing the coupon would be something
like 1.7%, though that's ignoring tax effects, which is probably only
possible for an insurance company.
With regard to long run returns from equities, my data shows, since
1929, a return of 9.5% for large cap stocks, 11.3% for large cap
value stocks, 12.2% for small cap stocks, and 13.5% for small cap
value stocks; asking Mr. Google will identify multiple citations
for these and similar numbers. I accordingly stand by my claim of
11-12%.
Nominal returns, sure. However, inflation adjustment brings that down
considerably, and again, the usual quoted figure for inflation
adjusted rate of return on equities, including dividends but
excluding tax effects, is generally about 7% -- it is, btw, essential
to include dividends. Unfortunately it is difficult to calculate tax
effects cleanly because different investors have such different tax
situations.
Perry
--
Perry E. Metzger perry@xxxxxxxxxxxx
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- » [AR] More investment talk, on a_rocket list (was Re: Re: VSS Unity powered flight) - Perry E. Metzger